Options Trader: Tuesday Morning Ideas

by: Philip Davis

Yesterday was blah and oil sell off shows just how crazy that market is, going down $1.75 on the rumor of peace (back up $1 today as no actual peace happened). Gold is in the same boat but on a real long-term uptrend - still liking NAK.

I'm not sure what people are expecting... Will the headline be "Condi brings peace with a sarcastic comment" or "Prez Bush brokers brilliant peace accord"? I'm not holding my breath...

Friday's oil split of taking OXY $105 puts for $4 against the OIH $150s for $1.75 worked well as they OXYs are now $6.50 while the OIHs are down to .25 for a net of $1 or 15% which is as good as you can hope to do in a crappy market like this (of course you should have stopped out of the OIH long ago and done much better...).

All the indices were unimpressive yesterday and the NYSE gave us no reason to believe any of the Dow's little jumps as it went down and stayed down all day. With all the indexes way off the mark, today is a good day to sit out as we wait for tomorrow's CPI report and a statement from Bernanke.

There is inflation as it is becoming harder and harder to "strip out" food and energy from the numbers as the logic for stripping it out is that the prices are volatile but at some point you have to admit that they just aren't going down. If the CPI number reflects the same danger signs as the PPI then we are in for a rough week despite some pretty good corporate earnings so far.

I don't hold out much hope for the day but watch GE, AAPL, MOT and TXN to gauge market sentiment. All those stocks are way too cheap in a halfway decent economy and if they can't recover there is little hope for the rest. I'm also watching MCD which should continue with momentum but may have a hard time fighting the tide of the markets.

The Nikkei lost 400 points last night as the Japanese are seeing this global mess in a lot worse light than our press is presenting it in. They are also concerned about our economy collapsing (not slowing down, collapsing) so export companies are getting hammered. Toyota can still buy GM for 10% of it's market cap so expect that rumor to come around to bolster GMs prices within a week.

The Nikkei is down about 3,000 points (20%) since May 8th while the Dow is off "just" 1,000 points (9%) so we need to see how the Nikkei handles 15,000 - a continued drop from Japan will pull the world down with it.

China's GDP is over 11% now and that means they will try to keep a lid on growth but that's like trying to stop the industrial revolution in this country, people want refrigerators, washers, cars, tractors and TVs and now that they are within reach it will be difficult to dissuade the Chinese consumers from doing what it takes to improve their lifestyles. I really don't see how this continues to surprise economists every quarter but it does.

You have a nation of one Billion farmers who are used to working in the field from dawn till dusk doing backbreaking labor to put food on the table and the global economy is enabling them to leap into the 20th (a la 1960 ish) century. What monetary policy change will dissuade a farmer from buying a tractor that will change his family's life? How do you keep the children down on the farm now that they've seen MTV's Real World? Did you know that during WW2 our GDP grew over 20% per year? When they say China's growth is "unsustainable" think about that.


JNJ is another one to watch as they had a great quarter with 9% earnings growth on strong sales, beating expectations by a penny which is a lot of money for a $180Bn company.

TGT lowered its July forecast so they will get slammed and probably spook retailers in general but I still like SHLD at less than $140.

UTX had great earnings and guidance which should be a Dow booster. The company is down from $64 just last week so I really like the $60s on the rebound at .70.

I'm not sure how to make money on this but we should have our first power blackout this week with the possibility of a catastrophic failure as usage is hitting new records.

UNH has earnings tomorrow and I think the Aug $50s for $1.05 are a great risk/reward play.

If SNE and TM have really bad days but our markets go up, I'm going to pick up the closest calls on a possible bounce back tomorrow. MTU is another one that is back on sale.

I like NYT at this price as earnings were pretty good and About.com is growing well. They are going to save $50M (20% boost in earnings) by cutting down the width of the paper and I think they will outlast over time as other papers start folding (get it?).